RUDNICK & WOLFE
203 NORTH LASALLE STREET
SUITE 1800
CHICAGO, IL 60601
January 28, 1997
(312) 368-2109
Securities and Exchange Commission
450 5th Street
Washington, D.C. 20549
RE: HORIZON GROUP, INC.
REGISTRATION STATEMENT ON FORM S-3
REGISTRATION STATEMENT NO. 33-95730
Ladies and Gentlemen:
Attached for filing is Amendment No. 1 to Registration Statement No.
33-95730 on Form S-3, including exhibits thereto, with respect to 919,462
shares of common stock of Horizon Group, Inc. (the "Company") which has
been marked to indicate the changes effected in the Registration Statement
by the Amendment.
The changes in Amendment No. 1 include: (i) reduction of the number
of shares being registered; (ii) updating of the information set forth
under the caption "Federal Income Tax Considerations;" and (iii) routine
updating and minor editorial efforts and corrections.
A signed and currently dated accountant's consent has been filed as
Exhibit 23.1 to the Registration Statement.
Please call the undersigned or Hal M. Brown (312/368-4012) of this law
firm if there is any comment or questions concerning the enclosed
Amendment No. 1.
Very truly yours,
RUDNICK & WOLFE
/S/ DORIAN R. WILLIAMS
Dorian R. Williams
DRW/ph
Enclosure
cc: Amy Meltzer Starr
Jeffrey A. Kerr
Errol R. Halperin
Hal M. Brown
DRW2259
<PAGE>
As filed with the Securities Exchange Commission on January 29, 1997
Registration No. 33-95730
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HORIZON GROUP, INC.
(FORMERLY KNOWN AS HGI REALTY, INC.)
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2559212
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
5000 HAKES DRIVE
NORTON SHORES, MI 49441
(616) 798-9100
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
MR. JEFFREY A. KERR
CHAIRMAN OF THE BOARD AND PRESIDENT
5000 HAKES DRIVE
NORTON SHORES, MI 49441
(616) 798-9100
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
ERROL R. HALPERIN, ESQ.
HAL M. BROWN, ESQ.
RUDNICK & WOLFE
203 NORTH LASALLE STREET, SUITE 1800
CHICAGO, ILLINOIS 60601
(312) 368-4033
(312) 236-7516 (TELECOPIER)
<PAGE>
Registration No. 33- 95730
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HORIZON GROUP, INC.
(FORMERLY KNOWN AS HGI REALTY, INC.)
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2559212
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
5000 HAKES DRIVE
NORTON SHORES, MI 49441
(616) 798-9100
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
MR. JEFFREY A. KERR
CHAIRMAN OF THE BOARD AND PRESIDENT
5000 HAKES DRIVE
NORTON SHORES, MI 49441
(616) 798-9100
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
ERROL R. HALPERIN, ESQ.
HAL M. BROWN, ESQ.
RUDNICK & WOLFE
203 NORTH LASALLE STREET, SUITE 1800
CHICAGO, ILLINOIS 60601
(312) 368-4033
(312) 236-7516 (TELECOPIER)
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to distribution or interest reinvestment plans, check the following
box. <square>
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
distribution or interest reinvestment plans, check the following box.
<square><multiply>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. <square> _________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration Statement number of the earlier effective
registration statement for the same offering. <square> ________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. <square>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit aggregate offering price registration
fee{(1)}
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE 919,462 $25.375 $23,331,348 $8,046
</TABLE>
(1) PURSUANT TO RULE 457(C), THE PROPOSED MAXIMUM OFFERING PRICE AND THE
FILING FEE WITH RESPECT TO THE SHARES OF COMMON STOCK HELD BY AFFILIATES
HAVE BEEN COMPUTED BASED ON THE AVERAGE OF THE HIGH AND LOW PRICES PER
SHARE OF COMMON STOCK REPORTED ON THE NEW YORK STOCK EXCHANGE COMPOSITE
TAPE ON AUGUST 7, 1995. A FILING FEE OF $9,559 WAS PREVIOUSLY PAID BY
THE REGISTRANT.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 29, 1997
PROSPECTUS
919,462 SHARES
HORIZON GROUP, INC.
COMMON STOCK
PAR VALUE $.01 PER SHARE
This Prospectus relates to 919,462 outstanding shares (the "Resale
Shares") of common stock, par value $.01 per share ("Common Stock"), of
Horizon Group, Inc., a Michigan corporation ("Company"), held by an
affiliate of the Company.
The Resale Shares may hereafter be offered or sold from time to time
for the account of the person named under the caption "Selling
Shareholder" on the New York Stock Exchange, other stock exchanges, or
otherwise, at prices and on terms then obtainable, in broker's
transactions, special offerings, exchange distributions, negotiated
transactions, block transactions, or otherwise. (See "Selling
Shareholder" and "Plan of Distribution.") The Company will not realize
any proceeds from any sale of the Resale Shares.
The Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol HGI. On January 24, 1997, the last reported sale price
of Common Stock on the New York Stock Exchange was $18.375.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS IS JANUARY ___, 1997.
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
Available Information ....................................... 1
Information Incorporated By Reference In This Prospectus .... 2
The Company ................................................. 4
Description of Common Stock ................................. 5
Selling Shareholder ......................................... 8
Federal Income Tax considerations ........................... 8
Plan of Distribution ........................................ 23
ERISA Matters ............................................... 23
Legal Matters ............................................... 24
Experts ..................................................... 24
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the Resale Shares. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For
further information pertaining to the securities offered hereby, reference
is made to the Registration Statement, including the exhibits filed as a
part thereof.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information
with the Commission. Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at its Regional Offices located at Suite 1400,
500 West Madison Street, Chicago, Illinois 60661; and Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically within the Commission. The address of the Commission's Web
site is: http://www.sec.gov. The Common Stock is listed on the New York
Stock Exchange ("NYSE") and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, OR INCORPORATED IN IT BY
REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF
THIS PROSPECTUS.
ALL DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS
BUT WHICH ARE NOT DELIVERED HEREWITH ARE AVAILABLE WITHOUT CHARGE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN) UPON REQUEST FROM HORIZON GROUP, INC., ATTENTION:
SECRETARY, 5000 HAKES DRIVE, NORTON SHORES, MICHIGAN 49441.
INFORMATION INCORPORATED BY REFERENCE
IN THIS PROSPECTUS
The following documents filed with the Commission by the Company
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus:
(a) The Company's Annual Report on Form 10-K (File No. 1-12424) for
the fiscal year ended December 31, 1995.
(b) Amendment No. 1 to the Company's Annual Report on Form 10-K (file
No. 1-12424) for the fiscal year ended December 31, 1995.
(c) The Company's Quarterly Reports on Form 10-Q (File No. 1-12424)
for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996.
(d) The Company's Current Report on Form 8-K (File No. 1-12424) dated
July 17, 1996.
(e) Description of the Company's Common Stock, par value $.01 per
share, contained in the Company's registration statement on Form 8-A dated
October 28, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Resale Shares shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated by
reference or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained in this Prospectus or in any other subsequently
filed document that also is or is deemed to be incorporated by reference
in this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
<PAGE>
THIS PROSPECTUS, INCLUDING DOCUMENTS INCORPORATED BY REFERENCE,
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, MANY OF
WHICH CANNOT BE PREDICTED WITH ACCURACY AND SOME OF WHICH MIGHT NOT EVEN
BE ANTICIPATED. FUTURE EVENTS AND ACTUAL RESULTS, FINANCIAL AND
OTHERWISE, MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION"
INCORPORATED BY REFERENCE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1995, AND THE COMPANY'S QUARTERLY
REPORTS ON FORM 10-Q FOR THE FISCAL QUARTERS ENDED MARCH 31, 1996,
JUNE 30, 1996 AND SEPTEMBER 30, 1996, WHICH ARE INCORPORATED BY REFERENCE
IN THIS PROSPECTUS.
THE COMPANY
The Company is one of the largest developers, owners and operators of
outlet centers in the United States. As of November 1, 1996, the Company
owned and operated 37 outlet centers containing an aggregate of
approximately 9.0 million square feet of total gross leasable area ("GLA")
located in 20 states.
Since its inception in 1984, the Company and its predecessors have
acquired or developed outlet centers containing over 9.0 million square
feet of GLA and have developed 34 of its 37 existing centers. Commencing
with its taxable year ended December 31, 1994, the Company has elected to
be a treated as a REIT for federal income tax purposes and the Company
believes that it has been organized and has operated in such a manner as
to qualify for taxation as a REIT under the Internal Revenue Code of 1986
(the "Code"). The Company intends to continue to operate in the manner
required to continue to be taxed as a REIT. The Company is self-
administered and self-managed.
The Company's properties are held by, and all of the Company's
operations are conducted through the Operating Partnership. The Company is
the general partner of the Operating Partnership and owns approximately
79% of the Units of the Operating Partnership outstanding as of
September 30, 1996. The Units are redeemable, subject to certain
limitations to protect the Company's status as a REIT, into shares of
Common Stock of the Company on a unit-for-share basis.
The Company has grown, and plans to continue to grow, through
(i) developing new and expanding existing outlet centers and other retail
concepts, (ii) selectively acquiring outlet centers, portfolios and other
retail concepts, (iii) actively managing its portfolio to maintain
occupancies, increase rents, reduce occupancy costs and increase tenant
sales, (iv) utilizing an asset management approach to property operations
which includes intensive advertising and promotional efforts, and
maintaining a capital structure that facilitates growth.
The Company's executive offices are located at 5000 Hakes Drive,
Norton Shores, Michigan 49441, and its telephone number is (616) 798-9100.
DESCRIPTION OF COMMON STOCK
The following paragraphs summarize certain provisions of Michigan law
and the Articles of Incorporation and Bylaws. The summary of the terms of
the Common Stock set forth below does not purport to be complete and is
subject to and qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Company.
GENERAL
The Articles of Incorporation of the Company provide that the Company
may issue up to 60,000,000 shares of capital stock of the Company,
consisting of (i) 47,000,000 shares of Common Stock, par value $.01 per
share, (ii) 3,000,000 shares of Preferred Stock, par value $.01 per share,
and (iii) 10,000,000 shares of Excess Stock, par value $.01 per share. As
of December 31, 1996, there were 22,826,147 shares of Common Stock issued
and outstanding.
COMMON STOCK
All of the Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other
stock or series of stock and to the provisions of the Company's Articles
of Incorporation regarding conversion of Common Stock into Excess Stock,
holders of Common Stock will be entitled to receive distributions if, as
and when authorized and declared by the Board of Directors of the Company
out of assets legally available therefor and to share according to the
shareholders' respective rights and interests, in the assets of the
Company legally available for distribution to its shareholders in the
event of its dissolution after payment of, or adequate provision for, all
known debts and liabilities of the Company.
Subject to the provisions of the Articles of Incorporation regarding
conversion of Common Stock into Excess Stock, each outstanding share of
Common Stock entitles the holder to one vote on all matters submitted to a
vote of shareholders, including the election of directors, and, except as
otherwise required by law or except as provided with respect to any other
class or series of Stock, the holders of such Common Stock will possess
the exclusive voting power of the Company.
Holders of Common Stock have no conversion rights, sinking fund
rights, redemption rights, exchange rights, dividend rights, liquidation
preferences or preemptive rights to subscribe for any securities of the
Company.
Subject to the provisions of the Articles of Incorporation regarding
conversion of Common Stock into Excess Stock, shares of a particular class
of issued Common Stock will have equal dividend, distribution,
liquidation, voting and other rights.
Pursuant to the Michigan Business Corporation Act, as amended (the
"MBCA"), a Michigan corporation generally cannot dissolve, merge or sell
all or substantially all of its assets outside the ordinary course of
business unless approved by the affirmative vote of shareholders holding a
majority of the shares entitled to vote on the matter. The MBCA also
provides that a Michigan corporation cannot amend its articles of
incorporation unless approved by the affirmative vote of shareholders
holding a majority of the shares entitled to vote unless a larger
percentage is set forth in the corporation's articles of incorporation.
The Company's Articles of Incorporation provide that it may generally
be amended by the affirmative vote of holders of not less than a majority
of the Common Stock then outstanding and entitled to vote thereon,
although certain specified provisions thereof, such as those pertaining to
the removal of directors, related party transactions, restriction on
ownership of Common Stock, limitation of director liability,
indemnification, merger consolidation, dissolution or sale of
substantially all of the Company's assets and certain reorganizations of
the Company, may only be amended, altered or repealed by the affirmative
vote of holders of not less than two-thirds of the Common Stock then
outstanding and entitled to vote thereon. Notwithstanding the foregoing,
the Articles of Incorporation provide that, subject to the provisions of
any class or series of Stock at the time outstanding and subject to
approval by the affirmative vote of the holders of not less than a
majority of the Stock outstanding and entitled to vote thereon, the Board
of Directors has the power to cause the organization of an entity to take
over the property of the Company and to carry on the Company's affairs, to
merge the Company into such entity and to thereupon terminate the Company.
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF COMMON STOCK
For the Company to qualify as a REIT under the Code (i) not more than
50% in number or value of its outstanding capital stock ("Stock") may be
owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) during the last half of a taxable year and (ii) the Stock must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter
taxable year. Because the Board of Directors currently believes it will
be essential for the Company to continue to qualify as a REIT under the
Code, the Board of Directors has adopted provisions of the Articles of
Incorporation imposing restrictions on the transfer and ownership of
Stock.
The Articles of Incorporation generally prohibit any shareholder from
having beneficial ownership, either directly or by virtue of the Code's
applicable attribution rules, of more than 7% in value of the Company's
outstanding Stock (the "Ownership Limit"). Subject to certain
limitations, the directors may increase the Ownership Limit from time to
time. Certain persons have been designated "Existing Holders," and the
directors may designate additional persons as "Existing Holders" from time
to time. An Existing Holder is not subject to the Ownership Limit.
Instead, the Articles of Incorporation establish rules for determining the
maximum percentage of outstanding Stock, in number or value, of which any
particular Existing Holder may have beneficial ownership, either directly
or by virtue of the Code's applicable attribution rules, at any particular
time (the "Existing Holder Limit").
The ownership restrictions contained in the Articles of Incorporation
(i) prohibit any person who is not an Existing Holder from having
beneficial ownership of Stock, either directly or by virtue of the
applicable attribution rules, in excess of the Ownership Limit,
(ii) prohibit any Existing Holder from having beneficial ownership of
Stock, either directly or by virtue of the applicable rules, in excess of
the applicable Existing Holder Limit, (iii) prohibit the Stock from being
owned by less than 100 persons, and (iv) prohibit the Company from being
"closely held" within the meaning of Section 856(h) of the Code
(collectively, "Ownership Restrictions"). If the Ownership Restrictions
are violated by a sale or transfer, such sale or transfer is void AB
INITIO unless the Company determines such sale or transfer will not
jeopardize the Company's status as a REIT or agrees to increase the
applicable Ownership Limit or Existing Holder Limit, but in no event will
such limits be increased if such increase would create the possibility
that five or fewer persons could own more than 49.9% of the outstanding
shares. Any person who purports to transfer or proposes to transfer
shares in violation of the Ownership Restrictions is required to
immediately give written notice to the Company of such event or proposed
event in order for the Company to determine the effect of such event or
proposed event on the Company's status as a REIT.
In the absence of appropriate safeguards, certain events could result
in a violation of the Ownership Restrictions ("Triggering Events"). Thus,
the Company's Articles of Incorporation provide that, upon the occurrence
of a Triggering Event, certain shares of Common Stock or Preferred Stock
may automatically be converted into Excess Stock. All Excess Stock will
be deemed to be owned by the Company as trustee for the exclusive benefit
of the person to whom they are ultimately transferred, and the person who
would otherwise be the owner of the shares converted into such Excess
Stock shall have no rights to or in such shares of Excess Stock other than
the right, subject to certain limitations, to designate the person to whom
such Excess Stock is to be transferred. The Company has the right to
redeem Excess Stock for the lesser of (i) its Fair Market Value (which is
defined in the Articles of Incorporation by reference to the average
closing sale price of Stock as reported on the New York Stock exchange)
for the five trading days immediately prior to the sale, or (ii) its Fair
Market Value for the five trading days immediately prior to the date upon
which the Company or a designee accepts such offer. Unless and until any
Excess Stock shall have been so transferred or redeemed, such Excess Stock
shall remain Excess Stock, and shall not confer upon any person any voting
rights, dividend rights or other distribution rights. Limitations are
imposed on the amount of consideration which a person may receive for
designating the third party to whom Excess Stock is to be transferred.
Any person who engages in a Triggering Event is required to immediately
give written notice of such event to the Company.
All certificates representing shares of Common Stock will bear a
legend referring to the Ownership Restrictions.
All persons who have beneficial ownership, directly or by virtue of
the attribution provisions of the Code, of more than 2.5% of the
outstanding Stock are required to file an affidavit with the Company
containing the information specified in the Articles of Incorporation
within 30 days after January 1 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Company such
information as the Board of Directors deems necessary to comply with the
provisions of the Code applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
The Ownership Restrictions will not automatically be removed from the
Articles of Incorporation even if the REIT provisions of the Code are
changed so as to no longer contain any ownership concentration limitation
or if the ownership concentration limitation is increased. Except as
otherwise described above, any change in the Ownership Restrictions would
require an amendment to the Articles of Incorporation. Such an amendment
to the Articles of Incorporation would require the affirmative vote of
holders owning not less than two-thirds of the Stock then outstanding and
entitled to vote thereon. In addition to preserving the Company's status
as a real estate investment trust, the Ownership Restrictions may have the
effect of precluding an acquisition of control of the Company without the
approval of the directors.
SELLING SHAREHOLDER
The Resale Shares may be offered from time to time for the account of
Jeffrey A. Kerr, Chairman of the Board of Directors, President and Chief
Executive Officer of the Company, as set forth in the table below. The
table sets forth information as of December 31, 1996 with respect to the
beneficial ownership of the Common Stock by the Selling Shareholder.
<TABLE>
<CAPTION>
SELLING SHAREHOLDER NUMBER OF SHARES OF NUMBER OF SHARES NUMBER OF RESALE
COMMON STOCK OF COMMON STOCK SHARES WHICH MAY
BENEFICIALLY OWNED WHICH MAY BE BE OWNED AFTER
PRIOR TO OFFERING OFFERED OFFERING
<S> <C> <C> <C>
Jeffrey A. Kerr 1,325,706 919,462 407,244*
</TABLE>
* The Company has previously filed a Registration Statement under the
Securities Act with the Commission relating to these shares, which
Registration Statement remains effective as of the date of this
prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the principal material federal income
tax considerations regarding the Company's Common Stock. The discussion
in this section is not tax advice, is for general information only and is
based on existing provisions of the Code, existing and proposed Treasury
Regulations promulgated under the Code ("Treasury Regulations"); existing
court decisions and rulings and other administrative rulings and
interpretations.
This discussion does not purport to deal with all aspects of taxation
that may be relevant to particular shareholders in light of their personal
investment or tax circumstances, or to certain types of shareholders
(including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States) subject to special
treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS, HER OR ITS OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM, HER OR IT OF
THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK OF THE COMPANY, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
If certain detailed conditions imposed by the REIT provisions of the
Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes
as corporations, are generally not taxed at the corporate level on their
"real estate investment trust taxable income" that is currently
distributed to shareholders. This treatment substantially eliminates the
"double taxation" (i.e., at both the corporation and shareholder levels)
that generally results from the use of corporations. Commencing with its
taxable year ended December 31, 1994, and thereafter, the Company has
elected to be treated as a REIT for federal income tax purposes and the
Company believes that it has been organized and has operated in such a
manner as to qualify for taxation as a REIT under the Code. The Company
intends to continue to operate in the manner required to continue to be
taxed as a REIT.
If the Company fails to qualify as a REIT in any taxable year,
however, it will be subject to federal income taxation as if it were a
domestic corporation, and its shareholders will be taxed in the same
manner as shareholders of ordinary corporations. In this event, the
Company could be subject to potentially significant tax liabilities, and,
therefore, the amount of cash available for distribution to its
shareholders would be reduced or eliminated.
Based upon certain representations described below, in the opinion of
Rudnick & Wolfe, counsel to the Company, the Company currently is and will
continue to be organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation as
represented by the Company will enable it to satisfy the requirements for
such qualification. This opinion is conditioned upon certain
representations made by the Company as to certain factual matters relating
to the Company's organization and manner of operations. In addition, this
opinion is based on the law existing and in effect on the date hereof.
The Company's qualification and taxation as a REIT will depend upon the
Company's ability to meet, on a continuing basis, through actual operating
results, distribution levels and diversity of stock ownership, the various
REIT qualification tests imposed under the Code. Counsel will not review
compliance with these tests on a continuing basis. No assurance can be
given that the Company will satisfy such tests on a continuing basis.
TAXATION OF THE COMPANY
GENERAL. If the Company qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on its
taxable income that is currently distributed to its shareholders. The
Company may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
An existing corporation will qualify as a REIT only if, at the close
of its taxable year, it has no earnings and profits accumulated with
respect to any taxable year during which it was not qualified as a real
estate investment trust.
Notwithstanding its qualifications as a REIT, the Company will be
subject to federal income tax in certain circumstances. First, the
Company will be taxed at regular corporate rates on any undistributed real
estate investment trust taxable income, including undistributed net
capital gains. Second, if during the 10-year period (a "Recognition
Period") beginning on the first day of the first taxable year for which
the Company qualified as a REIT, the Company recognizes gain on the
disposition of any asset (a "Recognition Asset") held by the Company as of
the beginning of such Recognition Period, then, the excess, if any, of
(a) the fair market value of such Recognition Asset as of the beginning of
such Recognition Period (the "Built-In Gain"), over (b) the REIT's
adjusted basis in such asset as of the beginning of the Recognition Period
will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations which have not yet been promulgated; provided,
however, that any such gain may be offset by the amount, if any, of any
losses recognized by the Company during the same taxable year on the
disposition of any Recognition Asset to the extent that (x) the Company's
adjusted basis in such Recognition Asset as of the beginning of such
Recognition Period exceeds (y) the fair market value of such Recognition
Asset upon its disposition (the "Built-In Loss"). Furthermore, the total
amount of Built-In Gain that may be recognized by the Company is limited
to the excess of (i) the fair market value of all of the assets of the
Company as of the beginning of the Recognition Period, over (ii) the
aggregate adjusted basis of such assets at such time (the "Net Unrealized
Built-In Gain"). Third, if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level
tax) in a transaction in which the Company's basis in the asset is
determined by reference to the basis of the asset in the hands of the C
corporation, and the Company recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which such asset
was acquired by the Company, then, to the extent the Built-In Gain on the
sale of such asset exceeds any Built-In Loss arising from the disposition
during the same taxable year of other assets acquired in the same
transaction, such gain will be subject to tax at the highest corporate
rate pursuant to Treasury Regulations that have not yet been promulgated.
The results described above with respect to the recognition of Built-In
Gain during such Recognition Period assumes the Company will make an
election to obtain such tax consequences pursuant to IRS Notice 88-19.
Fourth, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Fifth, if the
Company has (i) net income from the sale or other disposition of
"foreclosure property" which is generally real property and any personal
property incident to such real property acquired as a result of a default
either on a lease or on indebtedness by which such property is secured and
with respect to which an appropriate election is made, except that
property generally ceases to be foreclosure property after a two-year
period, or earlier, in certain cases or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Sixth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the
ordinary course of business other than foreclosure property), such income
will be subject to a 100% tax. Seventh, if the Company should fail to
satisfy either the 75% gross income test or the 95% gross income test (as
discussed below), and has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject
to a 100% tax on the net income attributable to the greater of the
respective amounts by which the Company fails the 75% or 95% test.
Eighth, if the Company fails to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
In order to qualify as a REIT, the Company must meet, among others,
the following requirements:
SHARE OWNERSHIP TESTS. The Company's Stock must be held by a minimum
of 100 persons for at least 335 days in each taxable year (or a
proportional number of days in any short taxable year). In addition, at
all times during the second half of each taxable year, no more than 50% in
value of the capital stock of the Company may be owned, directly or
indirectly and by applying certain constructive ownership rules, by five
or fewer individuals. For purposes of this test, any Company shareholder
which is a pension trust described in Section 401(a) of the Code will
generally not be treated as a single shareholder; instead, each
beneficiary of such trust will be treated as holding the Company Common
Stock in proportion to his actuarial interest in the trust. However, a
pension trust will be treated as a single shareholder for purposes of this
test if one or more "disqualified persons" with respect to such trust hold
in the aggregate 5% or more in value of the REIT's shares and the REIT has
accumulated earnings and profits attributable to any pre-REIT period. For
purposes of the foregoing rule, a disqualified person includes a fiduciary
of the trust, an employer any of whose employees are covered by the plan
of which the trust is a part, an employee organization any of whose
employees are covered by the plan of which the trust is a part, an owner
(direct or indirect) of 50% or more of an employer or employee
organization referred to above and certain other affiliates as of an
individual referred to above.
In order to ensure compliance with the foregoing stock ownership
tests, the Company has placed certain restrictions on the transfer of
Common Stock to prevent additional concentration of stock ownership.
Moreover, to evidence compliance with these requirements, under Treasury
Regulations, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock. In fulfilling its obligations
to maintain records, the Company must and will demand written statements
each year from the record holders of designated percentages of Common
Stock disclosing the actual owners of such Common Stock (as prescribed by
Treasury Regulations). Those persons failing or refusing to comply with
the Company's written demand must submit with his, her or its tax returns
a similar statement disclosing the actual ownership of Common Stock and
certain other information. In addition, the Company's Articles of
Incorporation provide restrictions regarding the transfer of its shares
that are intended to assist the Company in continuing to satisfy the
ownership requirements. See "Description of Capital Stock of the Company
-- Restrictions on Transfer and Ownership of Common Stock."
ASSET TESTS. At the close of each quarter of the Company's taxable
year, the Company must satisfy two tests relating to the nature of its
assets (determined in accordance with generally accepted accounting
principles). First, at least 75% of the value of the Company's total
assets must be represented by interests in real property, interest in
mortgages on real property, shares in other REIT's, cash, cash items,
government securities and qualified temporary investments. Second,
although the remaining 25% of the Company's assets generally may be
invested without restriction, the value of securities in this class may
not exceed either (i) in the case of securities of any one non-government
issuer, 5% of the value of the Company's total assets or (ii) 10% of the
outstanding voting securities of any one such issuer. Where the Company
invests in a partnership (such as the Operating Partnership), it will be
deemed to own a proportionate share of the partnership's assets. See "--
Tax Aspects of the Company's Investments in the Operating Partnership --
General." Accordingly, the Company's investment in properties through its
interest in the Operating Partnership is intended to constitute qualified
assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting stock and 5% of
the voting stock of each of HGI Management Corp. (the "HGI Management
Company"), MG Third Party Services Corp. (the "MG Management Company") and
certain other C corporations (the "Financing Subsidiaries") that are the
sole general partners of certain financing partnerships that have entered
into loan transactions with various lenders. As described above, by
virtue of its partnership interest in the Operating Partnership, the
Company will be deemed to own a pro rata share of the securities of each
of the HGI Management Company, the MG Management Company and the Financing
Subsidiaries. Because the Operating Partnership owns only 5% of the
voting securities of each of the HGI Management Company, the MG Management
Company and the Financing Subsidiaries, the 10% limitation on holdings of
voting securities of any one issuer is not exceeded. In addition, based
upon its comparison of the total estimated value of the HGI Management
Company, the MG Management Company and the Financing Subsidiaries
securities owned by the Operating Partnership to the estimated value of
the total assets owned by the Operating Partnership and the Company, the
Company believes that limitation restricting the Company's ownership of
the securities of any one issuer to 5% of the value of the Company's total
assets is not exceeded. Counsel for the Company, in rendering its opinion
as to the qualification of the Company as a REIT, is relying on
representations of the Company with respect to the value of such
securities and assets. The 5% value limitation must be satisfied at the
end of any quarter in which the Company acquires securities (directly or
through the Operating Partnership), but also at the end of any quarter in
which the Company increases its interest in each of the HGI Management
Company, the MG Management Company, the Financing Subsidiaries or acquires
other property. In this respect, if any partner of the Operating
Partnership exercises its option to redeem or exchange Units for shares of
Common Stock, the Company will thereby increase its proportionate
(indirect) ownership interest in each of the HGI Management Company, the
MG Management Company and the Financing Subsidiaries, thus requiring the
Company to reassess its ability to meet the 5% test in any quarter in
which such exchange option is exercised. Although the Company plans to
take steps to ensure that it satisfies the 5% value test for any quarter
with respect to which reassessment is to occur, there can be no assurance
that such steps will always be successful or will not require a reduction
in the Operating Partnership's overall interest in the HGI Management
Company, the MG Management Company or the Financing Subsidiaries.
GROSS INCOME TESTS. There are three separate percentage tests
relating to the sources of the Company's gross income which must be
satisfied for each taxable year. For purposes of these tests, where the
Company invests in a partnership, the Company will be treated as receiving
its allocable share of income and loss of the partnership, and the gross
income of the partnership will retain the same character in the hands of
the Company as it has in the hands of the partnership. See "- Tax Aspects
of the Company's Investment in the Operating Partnership - General." The
three tests are as follows:
* THE 75% TEST. At least 75% of the Company's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (as modified below); (ii) interest
on obligations secured by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Company's
trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITs as well as gain from the sale of
such shares; (v) abatements and refunds of real property taxes;
(vi) income from the operation, and gain from the sale, of property
acquired at or in lieu of a foreclosure of the mortgage secured by such
property ("foreclosure property"); and (vii) commitment fees received for
agreeing to make loans secured by mortgages on real property or to
purchase or lease real property.
Rents received from a tenant will not qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the
Company, directly or constructively owns 10% or more of such tenant. In
addition, if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total rent
received under the lease, the portion of rent attributable to such
personal property will not qualify as rents from real property. Moreover,
an amount received or accrued will not qualify as rents from real property
(or as interest income) for purposes of the 75% and 95% gross income tests
if it is based in whole or in part on the income or profits of any person,
although an amount received or accrued generally will not be excluded from
"rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property, the Company generally
must not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" from whom the
Company derives no income, except that the "independent contractor"
requirement does not apply to the extent that the services provided by the
Company are "usually or customarily rendered" in connection with the
rental of space for occupancy only, or are not otherwise considered
"rendered to the occupant for his convenience."
Each of the HGI Management Company and the MG Management Company (each
of which does not satisfy the independent contractor standard), as a
management agent for the Operating Partnership, provide certain services
with respect to properties that the Operating Partnership does not own or
in which it has a partial ownership interest. The Company believes that
all services provided by the HGI Management Company and the MG Management
Company to the Operating Partnership are and will continue to be of the
type usually or customarily rendered in connection with the rental of
space for occupancy only, and therefore, that the provision of such
services does not and will not cause the rents received with respect to
the properties to fail to qualify as rents from real property for purposes
of the 75% and 95% gross income tests.
* THE 95% TEST. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Company's gross income for
the taxable year must be derived from the above-described qualifying
income, or from dividends, interest, or gains from the sale or other
disposition of stock or other securities that are not dealer property.
Dividends and interest on any obligations not collateralized by an
interest in real property are included for purposes of the 95% test, but
not for purposes of the 75% test.
For purposes of determining whether the Company complies with the 75%
and 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Company for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made
thereto) are satisfied. See "- Taxation of the Company - General" and "-
Tax Aspects of the Company's Investment in the Operating Partnership -
General."
The Company believes that, for purposes of both the 75% and 95% gross
income tests, its investment in properties through the Operating
Partnership will give rise to qualifying income in the form of rents, and
that gains on sales of properties, or of the Company's interest in the
Operating Partnership, generally will also constitute qualifying income.
The HGI Management Company and the MG Management Company also receive
fee income in consideration of the performance of property management and
other services with respect to properties partially owned or not owned by
the Operating Partnership; however, substantially all of the income
derived by the Operating Partnership from the HGI Management Company and
the MG Management Company will be in the form of dividends on the HGI
Management Company stock and the MG Management Company stock owned by the
Operating Partnership. Although such dividends and interest income will
satisfy the 95%, but not the 75%, gross income test (as discussed above),
the Company anticipates that the amount of non-qualifying income on its
other investments, including such dividend and interest income, will not
result in the Company failing either the 75% or 95% gross income test.
Even if the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT
for such year if it is entitled to relief under certain provisions of the
Code. These relief provisions will generally be available if: (i) the
Company's failure to comply was due to reasonable cause and not willful
neglect; (ii) the Company reports the nature and amount of each item of
its income included in the tests on a schedule attached to its tax return;
and (iii) any incorrect information on this schedule is not due to fraud
with intent to evade tax. If these relief provisions apply, however, the
Company will nonetheless be subject to a 100% tax on the greater of the
amount by which it fails either the 75% or 95% gross income test,
multiplied by a fraction intended to reflect the Company's profitability.
THE 30% TEST. The Company must derive less than 30% of its gross
income for each taxable year from the sale or disposition of (i) real
property held for less than four years (other than foreclosure property
and property disposed of in involuntary conversions); (ii) stock or
securities held for less than one year; and (iii) property in a prohibited
transaction. The Company believes that it will not have difficulty in
complying with this test.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company is required to distribute dividends (other than capital gain
dividends) to its shareholders in an amount at least equal to (A) the sum
of (i) 95% of the "REIT taxable income" of the Company (computed without
regard to the dividends paid deduction and the Company's net capital gain)
and (ii) 95% of the net income (after tax), if any, from foreclosure
property, minus (B) the sum of certain items of noncash income. In
addition, if during the 10-year Recognition Period, the Company recognizes
gain on the disposition of any Recognition Asset held by the Company as of
the beginning of such Recognition Period, then the Company will be
required, pursuant to Treasury Regulations which have not yet been
promulgated in final form, to distribute to its shareholders at least 95%
of the excess (after the payment of any applicable taxes), of (a) the fair
market value of such Recognition Asset as of the beginning of such
Recognition Period over (b) the Company's adjusted basis in such
Recognition Asset as of the beginning of such Recognition Period;
provided, however, that any such excess amount may be offset by the
amount, if any, of any losses recognized by the Company during the same
taxable year on the disposition of any Recognition Asset to the extent
that (x) the Company's adjusted basis in such Recognition Asset as of the
beginning of such Recognition Period exceeds (y) the fair market value of
such Recognition Asset upon its disposition. Such distributions must be
paid in the taxable year to which they relate, or in the following taxable
year if declared before the Company timely files its tax return for such
year and if paid on or before the first regular dividend payment after
such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%,
of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed ordinary and capital gain income from prior periods, the
Company would be subject to a nondeductible 4% excise tax on the excess of
such required distribution over the amounts actually distributed. The
Company intends to make timely distributions sufficient to satisfy all
annual distribution requirements.
It is possible that, from time to time, the Company may experience
timing differences between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of that income and
deduction of such expenses in arriving at the Company's REIT taxable
income. Further, it is possible that, from time to time, the Company may
be allocated a share of net capital gain attributable to the sale of
depreciable property which exceeds its allocable share of cash
attributable to that sale. If either of the foregoing situations arise,
the Company may have less cash available for distribution than is
necessary to meet its annual 95% distribution requirement or to avoid tax
with respect to capital gain or the excise tax imposed on certain
undistributed income. To meet the 95% distribution necessary to qualify
as a REIT or to avoid tax with respect to the capital gain or the excise
tax imposed on certain undistributed income, the Company may find it
appropriate to arrange for short-term (or possibly long-term) borrowings
to pay distributions or to pay distributions in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying
"deficiency dividends" to shareholders in a later year, which may be
included in the Company's deduction for dividends paid for the earlier
year. Thus, the Company may be able to avoid being taxed on amounts
distributed as deficiency dividends; provided, however, the Company will
be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY FOR TAXATION AS A REIT. If the Company fails to
qualify for taxation as a REIT in any taxable year, and the relief
provisions do not apply, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular
corporation rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will
they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will
be taxable as ordinary income, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions,
the Company will also be disqualified from taxation as a REIT for the four
taxable years following the year during which the Company ceased to
qualify as a REIT. It is not possible to state whether, in any
circumstance, the Company would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
GENERAL. Substantially all of the Company's investments will be held
through the Operating Partnership. In general, partnerships are "pass-
through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of the partnership and without regard to
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution
from the partnership. The Company will include in its income its
proportionate share of the foregoing Operating Partnership items for
purposes of the various REIT income tests and in computation of its REIT
taxable income. Moreover, for purposes of the REIT asset tests, the
Company will include its proportionate share of assets held by the
Operating Partnership. See "Taxation of the Company - General."
ENTITY CLASSIFICATION. The Company's interest in the Operating
Partnership involves special tax considerations, including the
classification of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for federal income tax
purposes. If the Operating Partnership is treated as an association, it
would be taxable as a corporation and therefore subject to an entity-level
tax on its income. In such a situation, the character of the Company's
assets and items of gross income would change, which would preclude the
Company from satisfying the asset tests and the income tests (see "-
Taxation of the Company - Asset Tests" and "- Gross Income Tests"), and in
turn would prevent the Company from qualifying as a REIT. See "- Taxation
of the Company - Failure to Qualify For Taxation as a REIT" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. In addition, any change in the Operating Partnership's
status for tax purposes might be treated as a taxable event in which case
the Company might incur a tax liability without any related cash
distributions. The Operating Partnership has not requested, and does not
intend to request, a ruling from the IRS that it will be treated as a
partnership for federal income tax purposes.
TAX CONSEQUENCES OF REDEMPTION/EXCHANGE OF UNITS
The partnership agreement of the Operating Partnership (the "Operating
Partnership Agreement") provides each Unit holder (other than the Company)
with the right, subject to certain limitations, to require the Operating
Partnership to redeem all or a portion of his, her or its Units for an
equal number of shares of Common Stock (subject to certain adjustments to
prevent dilution) or, at the option of the Company, the cash equivalent of
that number of shares of Common Stock. Alternatively, the Company can
assume the redemption obligation of the Operating Partnership and exchange
an equal number of shares of Common Stock or its cash equivalent for such
Units. (A Unit holder's right to require the redemption of Units is
referred to herein as the "Redemption Right").
ASSUMPTION OF REDEMPTION OBLIGATION BY THE COMPANY. If the Company
assumes and performs the redemption obligation, the Operating Partnership
Agreement provides that the redemption will be treated by the Company, the
Operating Partnership and the Unit holder as a sale of Units by such Unit
holder to the Company. In that event, such sale will be fully taxable to
the Unit holder, and such Unit holder will be treated as realizing for
federal income tax purposes an amount equal to the sum of the cash or the
value of the Common Stock received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the applicable Units at the
time of the transfer. The methodology used by the Operating Partnership
to allocate its liabilities to the Unit holders, which is based on
principles set forth in Treasury Regulations, will likely result in a
varying amount of such liabilities being allocated to different Unit
holders. Accordingly, it is possible that Unit holders who hold an
identical number of Units are allocated different amounts of liabilities
of the Operating Partnership for federal income tax purposes. The
determination of gain or loss will be based on the difference between the
amount realized by the Unit holder as described above and the adjusted tax
basis for such Units. The tax liability resulting from such gain could
exceed the amount of cash received upon disposition. Generally, a Unit
holder's adjusted basis for federal income tax purposes in his, her or its
Units will be equal to the amount of money and fair market value of
property he, she or it contributes to the Operating Partnership, plus (i)
his, her or its allocable share of the liabilities of the Operating
Partnership, plus (ii) his, her or its allocable share of the profits of
the Operating Partnership, less (iii) distributions to such Unit holder by
the Operating Partnership, less (iv) his, her or its allocable share of
the losses of the Operating Partnership.
REDEMPTION OF UNITS FOR CASH. If the Company does not elect to assume
the Operating Partnership's obligation to redeem, and the Operating
Partnership chooses to redeem a Unit holder's Units for cash that is not
contributed by the Company to effect the redemption, the redeeming Unit
holder would be treated as realizing an amount equal to the cash received
plus the amount of the Operating Partnership liabilities allocable to the
redeemed Units at the time of redemption. However, if the Operating
Partnership redeems less than all of a Unit holder's Units for cash that
is not contributed by the Company to effect the redemption, the Unit
holder would (i) recognize taxable gain only to the extent that the cash,
plus the amount of the Operating Partnership liabilities allocable to the
redeemed Units, exceeded the Unit holder's adjusted basis in all of such
Unit holder's Units immediately before the redemption, and (ii) not be
permitted to recognize any loss realized on the redemption.
REDEMPTION OF UNITS FOR COMMON STOCK. If the Company does not elect
to assume the Operating Partnership's obligation to redeem, and the
Operating Partnership redeems such Units for shares of Common Stock that
the Company contributes to the Operating Partnership to effect such
redemption, the redemption may be treated for tax purposes as a sale of
such Units to the Company in a fully taxable transaction, although there
is no authority that considers these facts in light of applicable legal
precedent, and thus the matter is not certain. In that event, the
redeeming Unit holder would be treated in the manner described in the
preceding paragraph (i.e., as realizing an amount equal to the value of
the shares of Common Stock received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the redeemed Units at the
time of the redemption).
If the redemption of the Units for Common Stock is not treated as a
sale for tax purposes as described above, the distribution of the Common
Stock to the Unit holder would, in general, be a taxable event only to the
extent the amount of Operating Partnership liabilities allocable to the
redeemed Units at the time of the redemption exceeded the Unit holder's
adjusted basis in his Units at the time of such redemption. However, a
redemption for a payment of Common Stock that is effected within five
years of (i) with respect to Unit holders who were former partners of
Horizon Outlet Centers Limited Partnership (the "Horizon Partnership"),
the consolidation of the Horizon Partnership and McG Outlet Centers
Limited Partnership ("McArthur/Glen Operating Partnership") effective as
of July 14, 1995, or (ii) with respect to Unit holders who were former
partners of the McArthur/Glen Operating Partnership, the date of the
organization of the McArthur/Glen Operating Partnership, could result in
the recognition of income to such Unit holder, in an amount equal to the
lesser of (A) the excess of the value of the Common Stock received over
the tax basis of the Unit holder in all of his, her or its Units, as such
basis is reduced by the amount of such Unit holder's share of the
Operating Partnership liabilities allocable to the redeemed Units or (B)
the Unit holder's share of pre-contribution appreciation in assets
previously contributed by such partner to such partner's PREVIOUS
partnership (i.e., the Horizon Partnership or McArthur/Glen Operating
Partnership) in exchange for an interest therein, determined as of the
time of such contribution. Except as described below, a redemption for
Common Stock that occurs more than five years after the above periods
should generally result in no gain or loss to a redeeming Unit holder,
except to the extent that gain would result if the Unit holder's share of
the Operating Partnership's liabilities allocable to the redeemed Units
exceeded the adjusted tax basis of the Unit holder in his, her or its
Units immediately before the redemption.
Moreover, even if gain is not recognized under the rules described in
the immediately preceding paragraph, Code Section 731(c) could be applied
to result in the recognition of gain to a Unit holder on the redemption of
all or a portion of his Units in exchange for a payment of Common Stock.
Under Code Section 731(c), distributions of marketable securities
generally are treated as cash distributions. In the case of the
distribution of Common Stock pursuant to the exercise by a Unit holder of
his Redemption Right, the Common Stock distributed would be considered to
be marketable securities treated as cash, but in that case, under Code
Section 731(c), the amount of gain that would otherwise be recognized by
the distributee Unit holder would be reduced (but not below zero) by an
amount equal to the excess of (i) the amount of gain that would have been
allocable to such Unit holder under the Operating Partnership Agreement if
all of the Common Stock had been sold by the Operating Partnership rather
than distributed to the Unit holder pursuant to the exercise of the
Redemption Right over (ii) such Unit holder's distributive share of the
net gain attributable to such marketable securities held by the Operating
Partnership after the distribution. Under this exception, a distribution
consisting solely of Common Stock to a Unit holder in connection with the
exercise of the Redemption Right may reduce, but may not eliminate, the
taxable gain that would otherwise be recognized by the Unit holder as a
result of such redemption.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable United
States shareholders out of current or accumulate earnings and profits (and
not designated as capital gain dividends) will be taken into account by
such United States shareholders as ordinary income and corporate
recipients will not be eligible for the dividends received deduction.
Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period
for which the shareholder has held its Common Stock. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a shareholder to
the extent that they do not exceed the adjusted basis of the shareholder's
Common Stock, but rather will reduce the adjusted basis of such shares.
To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a shareholder's Common
Stock, such distributions will be included in income as long-term capital
gain (or short-term capital gain if the shares have been held for one year
or less) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any distribution declared by the Company in
October, November or December of any year payable to a shareholder of
record on a specified date in any such month shall be treated as both paid
by the Company and received by the shareholder on December 31 of such
year, provided that the distribution is actually paid by the Company
during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
shareholder who has held such shares for six months or less (after
applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to
be treated by such shareholder as long-term capital gain.
BACKUP WITHHOLDING. The Company will report to its United States
shareholders and the IRS the amount of distributions paid during each
calendar year, and the amount of tax withheld, if any. Under the backup
withholding rules, a shareholder may be subject to backup withholding at
the rate of 31% with respect to distributions paid unless such holder
(a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide the Company
with its correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will
be credited against the shareholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their nonforeign
status to the Company. See "- Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS. Distributions by the Company to
a shareholder that is a tax-exempt entity should not constitute "unrelated
business taxable income" ("UBTI"), as defined in Code Section 512(a),
provided that the tax-exempt entity has not financed the acquisition of
its shares with "acquisition indebtedness" within the meaning of the Code
and the shares are not otherwise used in an unrelated trade or business of
the tax-exempt entity. Notwithstanding the foregoing, under certain
circumstances, a pension trust owning more than 10% of the Company's
Common Stock will be required to treat a percentage of its dividend income
from the Company as UBTI. The applicable percentage is equal to the
amount of gross income of the Company that would be treated as arising
from an unrelated trade or business if the Company were a pension trust,
divided by the total gross income of the Company. This dividend provision
will apply only if (i) the Company satisfied the five-or-fewer share
ownership test described above only by relying on the special rule that
treats beneficiaries of a pension trust as individual shareholders, as
opposed to the trust itself, and (ii) either one pension trust owns more
than 25% in value of the Company or a group of pension trusts individually
holding more than 10% of the value of the Company collectively owns more
than 50% of the value of the Company.
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing United States
federal income taxation of non-resident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders
(collectively, "Non-U.S. Shareholders") are complex, and no attempt will
be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions that are not attributable to gain from sales or
exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such
distributions will ordinarily be subject to a withholding tax equal to 30%
of the gross amount of the distribution unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in
the shares is treated as effectively connected with the Non-U.S.
Shareholder's conduct of a United States trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the
same manner as United States shareholders are taxed with respect to such
distributions (and may also be subject to the 30% branch profits tax in
the case of a shareholder that is a foreign corporation). The Company
expects to withhold United States income tax at a rate of 30% on the gross
amount of any such distributions made to a Non-U.S. Shareholder unless
(i) a lower treaty rate applies or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is
effectively connected income. Distributions in excess of current and
accumulated earnings and profits of the Company will not be taxable to a
non-U.S. Shareholder to the extent that such distributions do not exceed
the adjusted basis of the non-U.S. Shareholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Shareholder's shares, such
distributions will give rise to tax liability if the Non-U.S. Shareholder
would otherwise be subject to tax on any gain from the sale or disposition
of his shares in the Company, as described below. If it cannot be
determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and
profits, the distributions will be subject to withholding at the same rate
as dividends. However, amounts thus withheld are refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of
United States real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, distributions
attributable to gain from sales of United States real property interests
are taxed to a Non-U.S. Shareholder as if such gain was effectively
connected with a United States business. Non-U.S. Shareholders would thus
be taxed at the normal capital gain rates applicable to United States
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Also, distributions subject to FIRPTA may be subject to a 30% branch
profits tax in the hands of a foreign corporate shareholder not entitled
to treaty exemption. The Company is currently required by applicable
Treasury Regulations to withhold 34% of any distribution that could be
designated by the Company as a capital gains dividend. This amount is
creditable against the Non-U.S. Shareholder FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during
a specified testing period less than 50% in value of the shares was held
directly or indirectly by foreign persons. It is currently anticipated
that the Company will be a "domestically controlled REIT," and therefore
the sale of shares will not be subject to taxation under FIRPTA. However,
gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if
(i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as United States
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder
is a nonresident alien individual who was present in the United States for
183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. If the gain on
the sale of shares were to be subject to taxation under FIRPTA, then, as
noted above, the Non-U.S. Shareholder will be subject to the same
treatment as United States shareholders with respect to such gain (subject
to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals).
OTHER TAX CONSIDERATIONS
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES.
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in the Company may be modified by
legislative, judicial or administrative action at any time and that any
such action may affect investments and commitments previously made. The
rules dealing with federal income taxation are constantly under review by
persons involved in the legislative process and by the IRS and the
Treasury Department, resulting in revisions of regulations and revised
interpretations of established concepts as well as statutory changes.
Revisions in federal tax laws and interpretations thereof could adversely
affect the tax consequences of an investment in the Company.
STATE AND LOCAL TAXES. The Company and its shareholders may be
subject to state or local taxation in various jurisdictions, including
those in which it or they transact business or reside. The state or local
tax treatment of the Company and its shareholders may not conform to the
federal income tax consequences discussed above. Consequently,
prospective shareholders should consult their own tax advisors regarding
the effect of state and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
The Selling Shareholder may offer and sell Resale Shares by means of
the Prospectus in one or more transactions on the NYSE or otherwise, in
special offerings, exchange distributions or secondary distribution
pursuant to or in accordance with the rules of the NYSE, in negotiated
transactions through the writing of options of the Resale Shares or a
combination of such methods of sale; the selling price of the Resale
Shares may be at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.
The Selling Shareholder and any brokers or dealers that act in
connection with the sale of Resale Shares hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act
and any commissions received by them and any profit on the sale of Resale
Shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company will pay all of the expenses of the preparation, printing
and filing of the Registration Statement, any amendments or supplements
thereto, and prospectuses and revised prospectuses as required to cover
the transactions covered hereby, as well as the Company's fees and
disbursements of its counsel and accountants relating to the Registration
Statement, but the Company is not obligated to pay any underwriting
discounts and commissions, the legal fees and expenses of the Selling
Shareholder or transfer taxes, if any, relating to the sale or disposition
of Resale Shares by the Selling Shareholder.
The Selling Shareholder may also resell shares of Common Stock in open
market transactions pursuant to the resale provisions of Rule 144 under
the Securities Act or in transactions otherwise permitted under the
Securities Act.
ERISA MATTERS
The Company may be considered a "party in interest" within the meaning
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and a "disqualified person" under corresponding provisions of
the Code with respect to certain employee benefit plans. Certain
transactions between an employee benefit plan and a party in interest or a
disqualified person may result in "prohibited transactions" within the
meaning of ERISA and the Code, unless such transactions are effected
pursuant to an applicable exemption. Any employee benefit plan or other
entity subject to such provisions of ERISA or the Code proposing to invest
in the Resale Shares should consult its legal counsel.
LEGAL MATTERS
Certain legal matters in connection with the Resale Shares, including
the validity of the Resale Shares, will be passed upon for the Company by
Rudnick & Wolfe, Chicago, Illinois. Attorneys of that firm who
participated in the preparation of this Prospectus own a total of 4,100
shares of Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company
incorporated by reference or included in the Company's Annual Report
(Form 10-K) for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
thereon incorporated by reference or included therein and incorporated
herein by reference. Such financial statements and schedule are, and
audited financial statements to be included in subsequently filed
documents will be, incorporated herein in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent
covered by consents filed with the Securities and Exchange Commission)
given upon the authority of such firm as experts in accounting and
auditing.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4 Specimen Common Stock Certificate of Horizon Group, Inc.
5.1 Opinion of Rudnick & Wolfe
8.1 Opinion of Rudnick & Wolfe
23.1 Consent of Ernst & Young LLP
23.3 Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
24 Power of Attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Norton Shores, State of
Michigan, on January 27, 1997.
HORIZON GROUP, INC.
BY:/S/ JEFFREY A. KERR
Jeffrey A. Kerr
CHAIRMAN OF THE BOARD AND PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
Jeffrey A. Kerr* Director, Chairman of the January 27, 1997
Board of Directors and President
(Principal Executive Officer)
Douglas Crocker II* Director January 27, 1997
William P. Dickey* Director January 27, 1997
Alan Glen* Director January 27, 1997
Edwin N. Homer* Director January 27, 1997
Norman Perlmutter* Director January 27, 1997
Ronald L. Piasecki* Director January 27, 1997
Martin Sherman* Director January 27, 1997
Francis T. Vincent, Jr.* Director January 27, 1997
/S/ JOSEPH CATTIVERA Executive Vice President January 27, 1997
Joseph Cattivera (Principal Financial Officer)
/S/ RICHARD PHILLIPS Vice President (Principal January 27, 1997
Richard Phillips Accounting Officer)
*By:/S/ JEFFREY A. KERR Individually and as January 27, 1997
Jeffrey A. Kerr Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation [Incorporated by
reference to Exhibit 3.1 to Registration Statement, SEC File No. 33-
95174]
3.2 Amended and Restated Bylaws**
4 Specimen Common Stock Certificate of Horizon Group, Inc. [Incorporated
by
reference to Exhibit 4 to Registration Statement, SEC File No. 33-
91236]
5.1 Opinion of Rudnick & Wolfe**
8.1 Opinion of Rudnick & Wolfe**
23.1 Consent of Ernst & Young LLP**
23.3 Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
24 Power of Attorney*
*Previously filed.
**Filed with this Amendment.
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
HORIZON GROUP, INC.
(FORMERLY HGI REALTY, INC.)
ARTICLE I
OFFICES
SECTION 1. EXECUTIVE OFFICE. The principal executive office of HGI
REALTY, INC. (the "Corporation") shall be located in Muskegon, Michigan or
such other location as may be specified by the Board of Directors. The
books of account and records of the Corporation shall be kept in such
office.
SECTION 2. OTHER OFFICES. The Corporation may have other offices,
either within or without the State of Michigan, at such place or places as
the Board of Directors may from time to time appoint.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of shareholders for the
election of directors and for such other business as may properly come
before the meeting, shall be held on the second Tuesday in May, unless
otherwise specified by resolution adopted by the Board of Directors, at a
place, within or without the State of Michigan, as the Board of Directors
shall designate and set forth in the notice of the meeting.
If the date of the annual meeting shall fall on a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the shareholders entitled to vote shall elect successors to the
class of directors whose term expires at such annual meeting and may
transact such other business as shall be stated in the notice of the
meeting.
SECTION 2. QUORUM. Unless a greater or lesser quorum is provided in
the Articles of Incorporation of the Corporation (the "Articles of
Incorporation"), in a By-law adopted by the shareholders or by law, the
shares present in person or by proxy entitled to cast a majority of the
votes at a meeting shall constitute a quorum at the meeting. When the
holders of a class or series of shares are entitled to vote separately on
an item of business, this Section 2 applies in determining the presence of
a quorum of the class or series for transaction of the item of business.
If such quorum shall not be present or represented at any meeting of the
shareholders, the meeting may be adjourned by a vote of the shares
present, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. If a meeting is
adjourned to another time or place, it is not necessary, unless these
By-laws otherwise provide, to give notice of the adjourned meeting if the
time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken and at the adjourned meeting
only business is transacted as might have been transacted at the original
meeting. If after the adjournment the Board of Directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting
shall be given to each shareholder of record on the new record date
entitled to vote at the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders
may be called (a) by the Board of Directors, pursuant to a resolution
adopted by a majority of the members of the Board of Directors then in
office, or (b) by the Chairman of the Board of Directors (the "Chairman of
the Board"), the President or the Secretary upon the receipt by the
Corporation of a written demand therefor duly executed by shareholders of
record hold of not less than twenty-five percent (25%) of all of the
outstanding shares of the Corporation entitled to vote at such meeting,
which demand shall specify the purpose or purposes for such meeting.
Special meetings may be held at any place, within or without the State of
Michigan, as determined by the Board of Directors. The business which may
be conducted at any such special meeting shall be confined to the purpose
or purposes stated in the notice thereof.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of the time, place and purposes of a meeting of
shareholders, shall be given not less than ten nor more than sixty days
before the date of the meeting, either personally or by mail, to each
shareholder of record entitled to vote at the meeting. No business (other
than ministerial proceedings) other than that stated in the notice shall
be transacted at any meeting without the unanimous consent of all the
shareholders entitled to vote thereat.
SECTION 5. SHAREHOLDER NOMINATIONS AND PROPOSALS.
(a) No proposal for a shareholder vote shall be submitted by a
shareholder (a "Shareholder Proposal") to the Corporation's shareholders
unless the shareholder submitting such proposal (the "Proponent") shall
have filed a written notice setting forth with particularity (i) the names
and business addresses of the Proponent and all Persons (as defined in
Article 5 of the Articles of Incorporation) acting in concert with the
Proponent; (ii) the name and address of the Proponent and the Persons
identified in clause (i), as they appear on the Corporation's books (if
they so appear); (iii) the class and number of shares of the Corporation
beneficially owned by the Proponent and the Persons identified in
clause (i); (iv) a description of the Shareholder Proposal containing all
material information relating thereto; and (v) such other information as
the Board of Directors reasonably determines is necessary or appropriate
to enable the Board of Directors and shareholders of the Corporation to
consider the Shareholder Proposal. Upon receipt of the Shareholder
Proposal and prior to the shareholder meeting at which such Shareholder
Proposal will be considered, if the Board of Directors or a designated
committee or the officer who will preside at the shareholders meeting
determines that the information provided in a Shareholder Proposal does
not satisfy the informational requirements of these By-laws or is
otherwise not in accordance with law, the Secretary of the Corporation
shall promptly notify such shareholder of the deficiency in the notice.
Such shareholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within the period of
time, not to exceed five days from the date such deficiency notice is
given to the shareholder, determined by the Board of Directors, such
committee or such officer. If the deficiency is not cured within such
period, or if the Board of Directors, such committee or such officer
determines that the additional information provided by the shareholder,
together with the information previously provided, does not satisfy the
requirements of this Section 5, then such proposal shall not be presented
for action at the meeting in question.
(b) Only persons who are selected and recommended by the Board of
Directors, or who are nominated by shareholders in accordance with the
procedures set forth in this Section 5(b), shall be eligible for election,
or qualified to serve, as directors. Nominations of individuals for
election to the Board of Directors of the Corporation at any annual
meeting or any special meeting of shareholders at which directors are to
be elected may be made by any shareholder of the Corporation entitled to
vote for the election of directors at that meeting by compliance with the
procedures set forth in this Section 5(b). Nominations by shareholders
shall be made by written notice (a "Nomination Notice"), which shall set
forth (i) as to each individual nominated, (A) the name, date of birth,
business address and residence address of such individual; (B) the
business experience during the past five years of such nominee, including
his or her principal occupations and employment during such period, the
name and principal business of any corporation or other organization in
which such occupations and employment were carried on and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of his
or her prior business experience; (C) any directorships held by such
nominee in any company with a class of securities registered pursuant to
section 12 of the Securities Exchange Act of 1934, as amended, or subject
to the requirements of section 15(d) of such Act or any company registered
as an investment company under the Investment Company Act of 1940, as
amended; and (D) whether, in the last five years, such nominee has been
convicted in a criminal proceeding or has been subject to a judgment,
order, finding or decree of any federal, state or other governmental
entity, concerning any violation of federal, state or other law, or any
proceeding in bankruptcy, which conviction, order, finding, decree or
proceeding may be material to an evaluation of the ability or integrity of
the nominee; and (ii) as to the Person submitting the Nomination Notice
and any Person acting in concert with such Person, (x) the name and
business address of such Persons, (y) the name and address of such Persons
and as they appear on the Corporation's books (if they so appear) and
(z) the class and number of shares of the Corporation which are
beneficially owned by such Persons. A written consent to serve as a
director if elected, signed by the nominee, shall be filed with any
Nomination Notice. Except as otherwise required by applicable law, a
Nomination Notice made in accordance with the procedures prescribed by
these By-laws only permits the person submitting the Nomination Notice to
present the nominee at the applicable shareholders' meeting and does not
entitle such nominee to be named as a nominee in any solicitation of
proxies on behalf of the Board of Directors. If the presiding officer at
any shareholders meeting determines that a nomination was not made in
accordance with the procedures prescribed by these By-laws, he shall so
declare to the meeting and the defective nomination shall be disregarded.
(c) Nomination Notices and Shareholder Proposals shall be delivered
to the Secretary at the principal executive office of the Corporation not
less than sixty and not more than ninety days prior to the date of the
meeting of shareholders if such Nomination Notice or Shareholder Proposal
is to be submitted at an annual shareholders meeting (provided, however,
that if such annual meeting is called to be held before the date specified
in Section 1 of this Article II, such Nomination Notice or Shareholder
Proposal shall be so delivered no later than the close of business on the
tenth day following the day on which notice of the date of the annual
shareholders meeting was given). Nomination Notices and Shareholder
Proposals shall be delivered to the Secretary at the principal executive
office of the Corporation no later than the close of business on the tenth
day following the day on which notice of the date of a special meeting of
shareholders was given if the Nomination Notice or Shareholder Proposal is
to be submitted at a special shareholders meeting.
SECTION 6. VOTING. Except as provided in the Michigan Business
Corporation Act ("MBCA") or the Articles of Incorporation, each
outstanding share shall be entitled to one vote, in person or by written
proxy, on each matter submitted to a vote; provided that a proxy is not
valid after the expiration of three years from its date unless otherwise
provided in the proxy. Upon the demand of any shareholder, the vote for
directors and the vote upon any question before the meeting shall be by
ballot. If an action, other than the election of directors, is to be
taken by vote of the shareholders, it shall be authorized by a majority of
the votes cast by the holders of shares entitled to vote thereon, unless a
greater vote is required by the Articles of Incorporation or the MBCA.
Except as otherwise provided by the Articles of Incorporation, directors
shall be elected by a plurality of the votes cast at an election.
The officer or agent having charge of the stock transfer books for
shares of the Corporation shall make and certify a complete list of the
shareholders entitled to vote at a shareholders' meeting or any
adjournment thereof. The list shall be (i) arranged alphabetically within
each class and series, with the address of, and the number of shares held
by, each shareholder; (ii) produced at the time and place of the meeting;
(iii) subject to inspection by any shareholder during the whole time of
the meeting; and (iv) prima facie evidence as to who are the shareholders
entitled to examine the list or to vote at the meeting.
SECTION 7. CONDUCT OF SHAREHOLDERS' MEETINGS. The meetings of the
shareholders shall be presided over by the Chairman of the Board, or if he
is not present, by the President, or if he is not present, by a Vice
President designated by the Board of Directors, or if none of such
officers is present, by a chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as secretary of such
meetings or, if he is not present, an Assistant Secretary designated by
the Board of Directors shall so act; if neither the Secretary nor an
Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting. The order of business shall be as determined by
the chairman of the meeting.
SECTION 8. INSPECTORS OF ELECTION.
(a) The Board of Directors may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at the meeting and
make a written report thereof. The Board of Directors may designate one
or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
shareholders, the person presiding at the meeting shall appoint one or
more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according
to the best of his ability.
(b) The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine
challenges and questions arising in connection with the right to vote,
count and tabulate votes, ballots or consents, determine the result, and
do such acts as are proper to conduct the election or vote with fairness
to all shareholders. On request of the person presiding at the meeting or
a shareholder entitled to vote thereat, the inspectors shall make and
execute a written report to the person presiding at the meeting of any of
the facts found by them and matters determined by them. The report is
prima facie evidence of the facts stated and of the vote as certified by
the inspectors. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of the duties of the
inspectors.
(c) The date and time of the opening and the closing of the
polls for each matter upon which the shareholders will vote at a meeting
shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the
inspectors after the closing of the polls unless the Court of Chancery
upon application by a shareholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, ballots and the regular books
and records of the Corporation, except that the inspectors may consider
other reliable information for the limited purpose of reconciling proxies
and ballots submitted by or on behalf of banks, brokers, their nominees or
similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the shareholder
holds of record. If the inspectors consider other reliable information
for the limited purpose permitted herein, the inspectors at the time they
make their certification pursuant to subsection (b) of this Section 8
shall specify the precise information considered by them including the
person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was obtained
and the basis for the inspectors' belief that such information is accurate
and reliable.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the
Corporation which shall constitute the Board of Directors shall be
nine (9). No amendment to these By-laws decreasing the number of
directors shall have the effect of shortening the term of any incumbent
director, and no amendment shall increase the number of directors by fifty
percent (50%) or more in any twelve-month period without the unanimous
approval of the members of the Board of Directors then in office.
Provided that at the 1998 annual meeting of shareholders and thereafter,
the number of directors of the Corporation which shall constitute the
Board of Directors shall be reduced to seven (7).
SECTION 2. CLASSIFICATION AND ELECTION OF DIRECTORS. The directors
shall be divided into three classes, designated Class I, Class II and
Class III, with each class to be as nearly equal in number as possible.
Class I directors shall initially serve until the 1996 annual meeting of
shareholders; Class II directors shall initially serve until the 1997
annual meeting of shareholders; and Class III directors shall initially
serve until the 1998 annual meeting of shareholders. At each annual
meeting of shareholders beginning with the 1996 annual meeting, successors
to the Class I, Class II or Class III directors whose terms expire at that
annual meeting shall be elected for a term expiring at the third
succeeding annual meeting of shareholders after their election. At all
meetings of shareholders for the election of Class I, Class II or
Class III directors at which a quorum is present, the persons receiving
the greatest number of votes shall be the directors. Each Class I,
Class II or Class III director shall hold office until the annual meeting
of shareholders at which his term expires and his successor is elected and
qualified or until his earlier resignation or removal.
SECTION 3. RESIGNATIONS. Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein, and if no
time be specified, at the time of its receipt by the Chairman of the
Board, President or Secretary. The acceptance of a resignation shall not
be necessary to make it effective.
SECTION 4. VACANCIES. Any vacancy on the Board of Directors that
results for any reason, including an increase in the number of directors,
shall be filled by the Board of Directors by the affirmative vote of a
majority of the directors then in office. Any person elected to fill such
a vacancy (other than a vacancy arising from an increase in the number of
directors) shall hold such office for the unexpired term and until his
successor is elected and qualified or until his earlier resignation or
removal. Any person elected to fill a vacancy arising from an increase in
the number of directors shall hold such office until the next annual
meeting of shareholders, and his successor shall be elected at such annual
meeting for a term expiring in accordance with these By-laws.
SECTION 5. REMOVAL. Any Class I, Class II or Class III director may
be removed only for cause and only by the vote of a majority of the voting
power of all shares of capital stock of the Corporation then entitled to
vote generally in the election of directors, voting together as a single
class, at a special meeting of the shareholders called for the purpose,
and any vacancy thus created shall be filled by a candidate nominated in
accordance with Section 3 of Article IV of these By-laws.
SECTION 6. POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of its Board of Directors except as
otherwise provided in the MBCA or the Articles of Incorporation.
SECTION 7. MEETINGS. The newly elected directors may, without
notice, hold their first meeting for the purpose of organization and the
transaction of business, if a quorum be present, immediately after the
annual meeting of the shareholders; or the time and place of such meeting
may be fixed by consent in writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of
the directors.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, acting alone, or by the Chairman of the Board, the
President or the Secretary at the written request of a majority of the
members of the Board of Directors then in office who are not officers of
the Corporation, and shall be held at such place or places as may be
determined by resolution of the directors, or as shall be stated in the
call of the meeting.
The Chairman of the Board shall preside at all meetings of the Board
of Directors, or if he is not present, the person designated by a majority
of the directors present shall preside.
Notice of the date, time and place of each special meeting shall be
mailed by regular mail to each director at his designated address at least
six days before the meeting, or sent by overnight courier to each director
at his designated address at least two days before the meeting (with
delivery scheduled to occur no later than the day before the meeting), or
given orally by telephone, telegraph, telecopy or other comparable means
to each director at his designated address at least twenty-four hours
before the meeting, in the case of a meeting to be held by means of a
telephone conference, and at least thirty-six hours before all other
meetings. Any director may waive in writing notice of any meeting, and
the attendance of a director at any meeting shall constitute a waiver of
notice of such meeting. The notice of a special meeting shall state any
business to be transacted at the meeting which is outside the ordinary
course. Other routine business may be conducted at the special meeting
without such matter being stated in the notice.
Unless otherwise restricted by the Articles of Incorporation or these
By-laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
SECTION 8. QUORUM. A majority of the members of the Board of
Directors then in office shall constitute a quorum for the transaction of
business. If at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice
thereof need be given to the directors present at the adjourned meeting
other than by announcement at the meeting which shall be so adjourned;
provided, however, that notice of such reconvened meeting, stating the
date, time and place of the reconvened meeting, shall be given in
accordance with the requirements of Section 7 of this Article III to the
directors not present at the adjourned meeting.
SECTION 9. VOTE. Except as otherwise provided in the Articles of
Incorporation or other provisions of these By-laws, the vote of a majority
of the members of the Board of Directors then in office shall be the act
of the Board of Directors.
SECTION 10. COMPENSATION. Directors shall receive such compensation
for their services as directors or as members of committees, as may be
fixed by the Board of Directors, including but not limited to a stated
salary, fixed fee, or hourly rate and expenses of attendance for
attendance at each meeting or engagement or activity on behalf of this
Corporation. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity as an officer,
agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if all members of the Board of
Directors or of such committee as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
SECTION 12. APPROVAL OR RATIFICATION. Any contract, transaction or
act of the Corporation or of the Board of Directors or of any committee
thereof or of any officer of the Corporation which shall be approved or
ratified by the holders of a majority of the outstanding shares of the
Corporation at any annual meeting of shareholders or any special meeting
of shareholders called for such purpose shall be as valid and binding upon
the Corporation and all of its shareholders as if it had been approved or
ratified by all the shareholders of the Corporation.
ARTICLE IV
COMMITTEES
SECTION 1. STANDING COMMITTEES. There shall be a Compensation
Committee and an Audit Committee of the Board of Directors, and such other
committees as shall be designated by the Board of Directors. Each
committee shall consist of one or more directors of the Corporation.
A committee, and each member thereof, shall serve at the pleasure of
the Board.
Each standing committee may determine its own rules of procedure,
consistent with these By-laws. Meetings of any standing committee may be
called upon the direction of any member of such committee. Notice of the
date, time and place of each meeting shall be mailed by regular mail to
each member of such standing committee at his designated address at least
six days before the meeting, or sent by overnight courier to each such
member at his designated address at least two days before the meeting
(with delivery scheduled to occur no later than the day before the
meeting), or given orally by telephone, telegraph, telecopy or other
comparable means to each such member at his designated address at least
twenty-four hours before the meeting. Notice of a meeting of any standing
committee may be waived in writing by any member of such committee.
Except as otherwise provided in these By-laws, at meetings of each
standing committee, the presence of a majority of the members of such
committee shall be necessary to constitute a quorum for the transaction of
business, and, if a quorum is present at any meeting, the action taken by
a majority of the members present shall be the act of the committee. Each
standing committee shall keep such records of its acts and proceedings as
its chairman shall deem appropriate, and shall report its activities to
the Board of Directors from time to time.
SECTION 2. COMPENSATION COMMITTEE. The Compensation Committee shall
consist of such number of directors as from time to time shall be
prescribed by the Board of Directors. Each such director shall not be an
officer or employee of the Corporation or of any subsidiary or affiliated
company of the Corporation, and shall hold office until his successor is
elected. The Compensation Committee shall establish general guidelines
regarding the compensation of the officers and executives of the
Corporation, determine the compensation of the Chief Executive Officer,
and the four most highly compensated executive officers of the
Corporation, other than the Chief Executive Officer, whose individual
total annual salary and bonus exceeds $100,000, have the authority to
grant options under the Corporation's stock option plans and perform such
other duties with respect to plans affecting officers' remuneration as
shall be delegated to the Compensation Committee from time to time.
SECTION 3. AUDIT COMMITTEE. The Audit Committee shall consist of
such number of directors as from time to time shall be prescribed by the
Board of Directors. Each such director shall not be an officer or
employee of the Corporation or of any subsidiary or affiliated company of
the Corporation, and shall hold office until his successor is elected.
The duties of the Audit Committee shall be to make recommendations
concerning the engagement of independent public accountants, review with
the independent public accountants the plans and results of the audit
engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accounts, consider the range of audit and non-audit fees and review any
recommendations made by the Company's auditors regarding the Company's
accounting methods and the adequacy of its system of internal control.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, a Treasurer, and a Secretary, all of
whom shall be elected by the Board of Directors and hold office until
their successors are elected and qualified. In addition, the Board of
Directors may elect one or more Vice Presidents (one or more of whom may
be designated Senior Vice President or Executive Vice President) and such
Assistant Secretaries and Assistant Treasurers as they may deem proper.
None of the officers (other than the Chairman of the Board and the
President) need be directors. The officers shall be elected at the first
meeting of the Board of Directors after each annual meeting, and vacancies
in any office and newly created offices may be filled by the Board of
Directors at any time. More than two offices may be held by the same
person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board
of Directors.
SECTION 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board shall preside at meetings of the shareholders of the Corporation and
the Board of Directors. The Chairman of the Board shall also perform such
other duties as may be assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall have general charge, control and
supervision over the affairs of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
In the absence of the Chairman of the Board, the President shall preside
at meetings of the shareholders. Except as the Board of Directors shall
authorize the execution thereof in some other manner, the President shall
be authorized to execute bonds, mortgages and other contracts on behalf of
the Corporation, to cause the Corporation's seal to be affixed to any
instrument requiring such seal, and when so affixed such seal shall be
attested by the signatures of the Secretary or an Assistant Secretary.
SECTION 5. VICE PRESIDENT. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the
Board of Directors or as delegated to him by the President. The Board of
Directors may assign to any Vice President general supervision and charge
over any territorial or functional division of the business and affairs of
the Corporation.
SECTION 6. TREASURER. The Treasurer shall have responsibility for
the custody and safe-keeping of the funds and securities of the
Corporation and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all
moneys and other valuables in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors.
The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors or the President, taking proper vouchers
for such disbursements. He shall render to the Chairman of the Board, the
President and the Board of Directors at the regular meetings of the Board
of Directors, or whenever they may request it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of shareholders and directors and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Board of Directors, or shareholders, upon whose
requisition the meeting is called as provided in these By-laws. He shall
record all the proceedings of the meetings of the Corporation and of the
directors in a book to be kept for that purpose, and shall perform such
other duties as may be assigned to him by the Board of Directors or the
President. He shall have the custody of the seal of the Corporation and
shall affix the same to all instruments requiring it, when authorized by
the directors or the Chairman of the Board or the President, and attest
the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall
have such powers and shall perform such duties as shall be assigned to
them, respectively, by the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. INDEMNIFICATION PROVISIONS IN ARTICLES OF INCORPORATION.
The provisions of this Article VI are intended to supplement Article 8 of
the Articles of Incorporation pursuant to Section 8.2 of the Articles of
Incorporation. To the extent that this Article VI contains any provisions
inconsistent with said Article 8, the provisions of the Articles of
Incorporation shall govern. Terms defined in such Article 8 shall have
the same meaning in this Article VI.
SECTION 2. UNDERTAKINGS FOR ADVANCES OF EXPENSES. Unless otherwise
specified in the MBCA, an advancement by the Corporation of expenses
incurred by an indemnitee pursuant to clause (iii) of the last sentence of
Section 8.1 of the Articles of Incorporation (hereinafter an "advancement
of expenses") shall be made only upon delivery to the Corporation of a
written affirmation of eligibility for such advancement as required by the
MBCA and an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately
be determined by final judicial decision from which there is no further
right to appeal (hereinafter a "final adjudication") that such indemnitee
is not entitled to be indemnified for such expenses under Article 8.1 of
the Articles of Incorporation or otherwise. The total amount of expenses
advanced or indemnified from all sources combined shall not exceed the
amount of actual expenses incurred by the person seeking indemnification
or advancement of expenses.
SECTION 3. CLAIMS FOR INDEMNIFICATION. If a claim for
indemnification under Section 8.1 of the Articles of Incorporation is not
paid in full by the Corporation within sixty days after it has been
received in writing by the Corporation, except in the case of a claim for
an advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and in any suit by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses
only upon a final adjudication that the indemnitee has not met the
applicable standard of conduct set forth in the MBCA (or any successor
provision or provisions). Neither the failure of the Corporation
(including the Board of Directors, independent legal counsel or its
shareholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the MBCA (or any successor provision or provisions),
nor an actual determination by the Corporation (including the Board of
Directors, independent legal counsel, or its shareholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by
the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to have or retain such advancement of
expenses, under Article 8.1 of the Articles of Incorporation or this
Article VI or otherwise, shall be on the Corporation.
SECTION 4. PREDECESSOR CORPORATIONS. The Corporation shall provide
to individuals who were directors, officers, employees or agents of
McArthur/Glen Realty Corp. and Horizon Outlet Centers, Inc. immediately
prior to the Effective Date, indemnification rights equivalent to the
indemnification rights applicable to such individuals immediately prior to
the Effective Date for actions or omissions of such individuals in their
capacity as directors, officers, employees or agents of McArthur/Glen
Realty Corp. and Horizon Outlet Center, Inc., as the case may be,
occurring prior to the Effective Date.
SECTION 5. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, trustee, officer, employee or
agent of the Corporation or another enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
MBCA.
SECTION 6. SEVERABILITY. In the event that any of the provisions of
this Article VI (including any provision within a single section,
paragraph or sentence) is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, the remaining provisions are
severable and shall remain enforceable to the full extent permitted by
law.
ARTICLE VII
MISCELLANEOUS
SECTION 1. CERTIFICATES REPRESENTING SHARES. Certificates
representing shares shall set forth thereon the statements prescribed in
Section 332 and, where applicable, by Sections 463, 472 and 805, of the
MBCA and by any other applicable provision of law, and shall be signed in
the name of the Corporation by the Chairman of the Board, the President or
a Vice-President, and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, shall be issued to each shareholder
certifying the number of shares in the Corporation owned by such holder.
Any or all of the signatures may be facsimiles. If an officer who has
signed or whose facsimile signature has been placed upon a certificate
ceases to be an officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person were such
officer at the date of issue.
In the event that the shares or other securities of the Corporation
are listed on a national securities exchange, the Corporation may by
resolution of the Board of Directors eliminate certificates representing
such shares or securities and provide for such other methods of recording,
noticing ownership, and disclosure as may be provided by the rules of that
national securities exchange.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 2. LOST CERTIFICATES. A new certificate for shares may be
issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, and the
directors may, in their discretion, require the owner of the lost, stolen
or destroyed certificate to give the Corporation an affidavit as to such
person's ownership of the certificate and of the facts which go to prove
its loss, theft or destruction, and/or a bond, in such sum as they may
direct, sufficient to indemnify the Corporation against any claim that may
be made against it on account of the alleged loss, theft or destruction of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. Subject to compliance with any
agreement or provisions restricting the transferability of shares,
transfers of shares of stock shall be made on the books of the Corporation
only by direction of the person named in the certificate or such person's
attorney, lawfully constituted in writing, and only upon the surrender of
the certificate therefor and a written assignment of the shares evidenced
thereby. Surrender of the certificate shall be effected by the delivery
of the shares to the person in charge of the stock and transfer books and
ledgers of the Corporation, or to such other person as the directors may
designate, by whom the certificate shall be cancelled, and a new
certificate shall thereupon be issued. A record shall be made of each
transfer and whenever a transfer shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer.
SECTION 4. RECORD OWNERSHIP. A record of the name and address of the
holder of each certificate, the number of shares represented thereby and
the date of issue thereof shall be made on the Corporation's books. The
Corporation shall be entitled to treat the holder of record of any share
of stock as the holder in fact thereof, and accordingly shall not be bound
to recognize any equitable or other claim to or interest in any share on
the part of any other person, whether or not it shall have express or
other notice thereof, except as required by the laws of the State of
Michigan.
SECTION 5. RECORD DATE. In order that the Corporation may determine
the shareholders entitled to notice of and to vote at any meeting of
shareholders or any adjournment thereof, or to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not precede the date on which
the resolution fixing the record date is adopted by the Board of
Directors. The record date shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to
any other action. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting unless the Board of Directors fixes a new
record date pursuant to this Section for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Articles of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the
capital stock of the Corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the directors
from time to time in their discretion deem proper for working capital or
as a reserve fund to meet contingencies or for equalizing dividends or for
such other purposes as the directors shall deem conducive to the interests
of the Corporation.
SECTION 7. SEAL. The corporate seal shall be circular in form and
shall contain the name of the Corporation, the year of its creation and
the words "CORPORATE SEAL." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be
the calendar year unless otherwise determined by resolution of the Board
of Directors.
SECTION 9. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, and other commercial instruments, shall be signed
by such officer or officers, agent or agents of the Corporation, and in
such manner as shall be determined from time to time by resolution of the
Board of Directors.
SECTION 10. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail,
postage prepaid, addressed to the person entitled thereto at his address
as it appears on the records of the Corporation, and such notice shall be
deemed to have been given on the day of such mailing. Shareholders not
entitled to vote shall not be entitled to receive notice of any meetings
except as otherwise provided by law.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Articles of
Incorporation of the Corporation or these By-Laws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 11. VOTING OF STOCK OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be
executed in the name of and on behalf of the Corporation by the President
or such officers or employees or agents as the Board of Directors or the
President may direct. Any such officer may, in the name of and on behalf
of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders
of any corporation in which the Corporation may own securities and at any
such meeting shall possess and may exercise any and all rights and powers
incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may from time to time confer like powers upon any
other person or persons.
ARTICLE VIII
AMENDMENTS
These By-laws may be altered or repealed and By-laws may be made
(a) at any annual meeting of the shareholders or at any special meeting
thereof if notice of the proposed alteration or repeal or of the By-law or
By-laws to be made is contained in the notice of such special meeting, by
the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the combined voting power of all of the shares of all
classes of capital stock of the Corporation then entitled to vote
generally in the election of directors, or (b) at any regular meeting of
the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or of the
By-law or By-laws to be made, is contained in the notice of such meeting,
by the affirmative vote of a majority of the members of the Board of
Directors then in office.
EXHIBIT 5.1
RUDNICK & WOLFE
203 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1293
January 28, 1997 (312) 368-4012
The Board of Directors
Horizon Group, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
Gentlemen:
We have examined the registration statement on Form S-3 (Registration
No. 33-95730) filed with the Securities and Exchange Commission on or
about August 11, 1995, for registration under the Securities Act of 1933,
as amended, of 919,462 shares of common stock (the "Resale Shares") of
Horizon Group, Inc., a Michigan corporation (the "Company"), par value of
$.01 per share ("Common Stock"), which are currently outstanding. We have
examined pertinent corporate documents and records of the Company,
including its Amended and Restated Articles of Incorporation and its
Amended and Restated By-Laws, and we are familiar with the corporate
proceedings had and contemplated in connection with such issuance of
shares of Common Stock by the Company. We have also made such other
examinations as we have deemed necessary or appropriate as a basis for the
opinion hereinafter expressed.
On the basis of the foregoing, we are of the opinion that the Resale
Shares have been duly authorized and are legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the reference to our firm in the
registration statement under the caption "Legal Matters."
Very truly yours,
RUDNICK & WOLFE
By: /S/ HAL M. BROWN
Hal M. Brown, a Partner
EXHIBIT 8.1
RUDNICK & WOLFE
203 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1293
January 28, 1997 (312) 368-7284
The Board of Directors
Horizon Group, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
Gentlemen:
Re: TAX OPINION FOR S-3 REGISTRATION STATEMENT
Ladies and Gentlemen:
Pursuant to the Registration Statement on Form S-3 (Registration
Number 33-95730), filed by Horizon Group, Inc., a Michigan corporation
("Horizon" or the "Company"), with the Securities and Exchange Commission
on or about August 11, 1995 (the "Registration Statement"), you have
requested our opinion, as counsel to Horizon, concerning (i) the
qualification and taxation of Horizon as a real estate investment trust (a
"REIT") under the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) the information in the Prospectus (the "Prospectus") as contained
in the Registration Statement under the heading "FEDERAL INCOME TAX
CONSIDERATIONS." Unless otherwise specifically defined herein, all
capitalized terms have the meaning assigned to them in the Prospectus.
In connection with rendering the opinions expressed below, we have
examined originals (or copies identified to our satisfaction as true
copies of the originals) of the following documents (collectively, the
"Reviewed Documents"):
(a) Amended and Restated Limited Partnership Agreement of
Horizon/Glen Outlet Centers Limited Partnership, a Delaware
limited partnership ("Horizon/Glen Operating Partnership"), dated
as of July 14, 1995, as amended (the "Partnership Agreement");
(b) The Registration Statement; and
(c) Such other documents as may have been presented to us by Horizon
from time to time.
In addition, we have relied upon Horizon's certificate (the "Officer's
Certificate"), executed by a duly appointed officer of Horizon, setting
forth certain representations relating to the organization and operation
of Horizon and Horizon/Glen Operating Partnership. For the purposes of
our opinion, we have not made an independent investigation of the facts
set forth in the documents we reviewed. We consequently have assumed that
the information presented in such documents or otherwise furnished to us
accurately and completely describes all material facts relevant to our
opinion. In the course of our representation of Horizon, no information
has come to our attention that would cause us to question the accuracy or
completeness of the representations contained in the Officer's Certificate
or of the Reviewed Documents in a material way.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are
true and correct, and all of the obligations imposed by any such documents
on the parties thereto have been and will be performed or satisfied in
accordance with their terms. We have also assumed the genuineness of all
signatures, the proper execution of all documents, the authenticity of all
documents submitted to us as originals, the conformity to originals of
documents submitted to us as copies, and the authenticity of the originals
from which any copies were made.
In rendering these opinions, we have assumed that the transactions
contemplated by the Reviewed Documents will be consummated in accordance
with the terms and provisions of such documents, and that such documents
accurately reflect the material facts of such transactions. In addition,
the opinions are based on the correctness of the following specific
assumptions: (i) Horizon and Horizon/Glen Operating Partnership will each
be operated in the manner described in the Partnership Agreement or other
organizational documents and in the Prospectus, and all terms and
provisions of such agreements and documents will be complied with by all
parties thereto; (ii) Horizon/Glen Operating Partnership will be
classified as a partnership for federal income tax purposes; (iii) each
partner in Horizon/Glen Operating Partnership has been motivated in
acquiring its partnership interest by its anticipation of economic rewards
apart from tax considerations; (iv) Horizon is a validly organized and
duly incorporated corporation under the laws of the State of Michigan; and
(v) there has been no change in the applicable laws of the States of
Delaware or Michigan, or in the Code, the regulations promulgated
thereunder by the Treasury Department, and the interpretations of the Code
and such regulations by the courts and the Internal Revenue Service, all
as they are in effect and exist at the date of this letter. With respect
to the last assumption, it should be noted that statutes, regulations,
judicial decisions, and administrative interpretations are subject to
change at any time and, in some circumstances, with retroactive effect. A
material change that is made after the date hereof in any of the foregoing
bases for our opinions could affect our conclusions. Moreover, Horizon's
qualification and taxation as a REIT depends upon Horizon's ability to
meet, through actual annual operating results, distribution levels and
diversity of share ownership and the various qualification tests imposed
under the Code, the results of which will not be reviewed by the
undersigned. Accordingly, no assurance can be given that the actual
results of Horizon's operations for any one taxable year will satisfy such
requirements.
Based upon and subject to the foregoing, it is our opinion that:
(1) Horizon was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code for its taxable
year ended December 31, 1996, and Horizon's proposed method of operation,
as described in the Prospectus and as represented in the Officer's
Certificate, will enable it to satisfy the requirements for qualification
and taxation as a REIT under the Code.
(2) The statement of federal income tax matters and consequences
described in the Prospectus under the heading "FEDERAL INCOME TAX
CONSIDERATIONS," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is correct in all material
respects.
Other than as expressly stated above, we express no opinion on any
issue relating to Horizon and Horizon/Glen Operating Partnership, or to
any investment therein.
For a discussion relating the law to the facts and the legal analysis
underlying the opinion set forth in this letter, we incorporate by
reference the discussion of federal income tax issues, which we assisted
in preparing, in the section of the Prospectus under the heading "Federal
Income Tax Considerations." We assume no obligation to advise you of any
changes in the foregoing subsequent to the date of this opinion letter,
and we are not undertaking to update the opinion letter from time to time.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This opinion may be incorporated by reference in
any subsequent abbreviated registration statement of Horizon to the extent
such incorporation is permitted under the Securities Act of 1933, as
amended. This opinion letter has been prepared solely for your use in
connection with the Registration Statement and should not be quoted in
whole or in part or otherwise be referred to, nor filed with or furnished
to any governmental agency or other person or entity, without the prior
written consent of this firm.
Very truly yours,
RUDNICK & WOLFE
/s/ Rudnick & Wolfe
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 33-95730) and
related Prospectus of Horizon Group, Inc. for the registration of shares
of its common stock held by certain affiliates and to the incorporation by
reference therein of our reports dated February 22, 1996, with respect to
the consolidated financial statements and schedule of Horizon Group, Inc.
(formerly HGI Realty, Inc.) incorporated by reference or included in its
Annual Report (Form 10-K) for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
/S/ ERNST & YOUNG LLP
Ernst & Young LLP
Chicago, Illinois
January 27, 1997
